Investment logic: 1) The core product, loxoprofen sodium gel patch, benefits from increased penetration rate of topical patches+increased investment in in-hospital channels, and is expected to continue to grow rapidly; 2) Ketoprofen gel patches will enter medical insurance at the end of 2023. The pattern is good, and it is expected to start contributing to revenue growth in 2024; 3) There are plenty of paste/patch pipelines, and it is expected that about 4 patch products will be approved domestically in 2024-25.

There are over 0.3 billion chronic pain patients in China, and gel patches have significant advantages as one of the preferred treatment methods. According to the “Report on the Development of Pain Medicine in China”, there are more than 0.3 billion patients with chronic pain in China, and there are about 10-20 million new cases every year. The prevalence rate increases with age, and is particularly common among the elderly. However, at present, less than 20% of the public is aware of pain, and less than 60% of patients with chronic pain seek medical treatment. Topical nonsteroidal anti-inflammatory drugs are the preferred treatment for chronic pain. Among them, gel paste dosage forms are widely used clinically due to their significant advantages. The overall market size of topical paste in China in 2022 was about 18.4 billion yuan. Currently, proprietary Chinese medicines are still the main focus, but the share of chemical paste is increasing year by year. The market share increased from 26% to 32% in 2020-2022, and the growth rate is faster than that of proprietary Chinese medicine patches.

Loxoprofen sodium gel patches benefit from channel expansion+increased penetration rate of topical patches, and there is still plenty of room for growth. We believe that with a huge patient base of chronic pain, there is still plenty of room for external use to penetrate. Among them, topical non-steroidal anti-inflammatory drug patches, flurbiprofen gel patches and loxoprofen sodium gel patches occupy the vast majority of the market. Currently, only 2 companies have listed loxoprofen sodium paste in China, and Jiudian Pharmaceutical accounts for more than 70% of the market. In recent years, sales volume was rapid, with revenue of 1.55 billion yuan (YOY +18.7%) in 2023. Among the products being developed, Beijing Tide Pharmaceuticals is progressing the fastest. It has completed phase III clinical trials and is in the process of registration. The rest of the research companies are carrying out BE tests. Jiudian Pharmaceutical's loxoprofen sodium gel patch is mainly sold on the hospital side, and the coverage rate of lower-level hospitals and primary hospitals is small. At the same time, out-of-hospital channels are being vigorously developed, and revenue is expected to continue to grow.

To create a matrix of topical anti-inflammatory and analgesic products, the follow-up pipeline is worth looking forward to. 1) Ketoprofen gel patch: The ketoprofen gel patch launched by the company in 2023 currently has no similar products on the domestic market, and there are few competitors in development. Judging from the same products overseas, Hisamitsu's ketoprofen patch and gel patch are among the best-selling topical formulation products in Japan. The market size in 2022 is about 1.6 billion yuan, so we think this product has great potential. As ketoprofen gel patches enter national health insurance at the end of 2023, it is expected to start contributing to increased performance in 2024. 2) Other products under development: The company has a rich matrix of paste/patch products under development. It is expected that about 4 paste products will be launched in 2024-2025, laying the foundation for the company's longer-term development.

Profit forecast and valuation: The company is a leading platform-based paste company. The core product loxoprofen sodium gel patch has plenty of room for growth, and there are plenty of subsequent paste/patch pipelines. We expect net profit to be 0.51 billion yuan, 0.7 billion yuan, and 0.91 billion yuan respectively in 2024-2026, with growth rates of 39.8%, 35.4%, and 29.9% respectively. The PE corresponding to the current stock price is 23x, 17x, and 13x, respectively. The PE corresponding to the current stock price is 23x, 17x, and 13x, respectively.

Risk warning: Out-of-hospital channel expansion falls short of expectations; risk of worsening competitive landscape; progress in product launch under development falls short of expectations